Statement by Philip Lowe, Governor: Monetary Policy Decision

Summary:
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The global economic expansion is continuing. A number of advanced economies are growing
at an above-trend rate and unemployment rates are low. Growth in China has slowed a
little, with the authorities easing policy while continuing to pay close attention to
the risks in the financial sector. Globally, inflation remains low, although it has
increased due to both higher oil prices and some lift in wages growth. A further pick-up
in inflation is expected given the tight labour markets, and in the United States, the
sizeable fiscal stimulus. One ongoing uncertainty regarding the global outlook stems

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At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economic expansion is continuing. A number of advanced economies are growing
at an above-trend rate and unemployment rates are low. Growth in China has slowed a
little, with the authorities easing policy while continuing to pay close attention to
the risks in the financial sector. Globally, inflation remains low, although it has
increased due to both higher oil prices and some lift in wages growth. A further pick-up
in inflation is expected given the tight labour markets, and in the United States, the
sizeable fiscal stimulus. One ongoing uncertainty regarding the global outlook stems
from the direction of international trade policy in the United States.

Financial conditions in the advanced economies remain expansionary, although they are
gradually becoming less so in some countries. Yields on government bonds have moved a
little higher, but credit spreads generally remain low. There has been a broad-based
appreciation of the US dollar this year. In Australia, money-market interest rates are
higher than they were at the start of the year, although they have declined since the
end of June. In response, some lenders have increased their standard variable mortgage
rates by small amounts, while at the same time reducing mortgage rates for some new
loans.

The latest national accounts confirmed that the Australian economy grew strongly over
the past year, with GDP increasing by 3.4 per cent. The Bank's central
forecast remains for growth to average a bit above 3 per cent in 2018 and
2019. Business conditions are positive and non-mining business investment is expected to
increase. Higher levels of public infrastructure investment are also supporting the
economy, as is growth in resource exports. One continuing source of uncertainty is the
outlook for household consumption. Growth in household income remains low and debt
levels are high. The drought has led to difficult conditions in parts of the farm
sector.

Australia's terms of trade have increased over the past couple of years due to rises
in some commodity prices. While the terms of trade are expected to decline over time,
they are likely to stay at a relatively high level. The Australian dollar remains within
the range that it has been in over the past two years on a trade-weighted basis, but it
has depreciated against the US dollar along with most other currencies.

The outlook for the labour market remains positive. The unemployment rate is trending
lower and, at 5.3 per cent, is the lowest in almost six years. The vacancy
rate is high and there are reports of skills shortages in some areas. A further gradual
decline in the unemployment rate is expected over the next couple of years to around 5 per cent.
Wages growth remains low, although it has picked up a little. The improvement in the
economy should see some further lift in wages growth over time, although this is likely
to be a gradual process.

Inflation is around 2 per cent. The central forecast is for inflation to be
higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some
administered prices in the September quarter are expected to result in inflation in 2018
being a little lower than otherwise.

Conditions in the Sydney and Melbourne housing markets have continued to ease and
nationwide measures of rent inflation remain low. Growth in credit extended to
owner-occupiers remains robust, but demand by investors has slowed noticeably as the
dynamics of the housing market have changed. Credit conditions are tighter than they
have been for some time, although mortgage rates remain low and there is strong
competition for borrowers of high credit quality.

The low level of interest rates is continuing to support the Australian economy. Further
progress in reducing unemployment and having inflation return to target is expected,
although this progress is likely to be gradual. Taking account of the available
information, the Board judged that holding the stance of monetary policy unchanged at
this meeting would be consistent with sustainable growth in the economy and achieving
the inflation target over time.

The Reserve Bank of Australia (RBA) came into being on 14 January 1960 as Australia's central bank and banknote issuing authority, when the Reserve Bank Act 1959 removed the central banking functions from the Commonwealth Bank.
The bank has the responsibility of providing services to the Government of Australia in addition to also providing services to other central banks and official institutions. It currently consists of the Payments System Board, which governs the payments system policy of the bank, and the Reserve Bank Board, which governs all other monetary and banking policies of the bank.